The word “aggregate” simply means “total”. When we are looking at “Aggregate Demand” we are looking at the total demand for the entire Australian economy. As such we can no longer talk about bread or Cherry Ripe bars; aggregate demand includes EVERYTHING that we buy in this country.
Economists calculate aggregate demand by using the following formula:
These components can be broken down as follows:
| Component | Definition | Sector |
| C – Consumption Spending | Any spending by households (such as food, household appliances and so on) | Consumer Spending |
| I – Investment Spending | Any business investment in plant and equipment | Business Investment |
| G1 – Government Consumption | Payments made by the government on consumption items (such as wages for administrative staff) | Government Sector |
| G2 – Government Investment | Payments made by the government on capital items (such as new buildings or roads) | |
| X – Exports | Any good or service sold from Australia to someone overseas | The External Sector |
| M - Imports | Any good or service purchased by someone in this country from overseas |
We can use this table to help us assess whether or not a change in the economy will affect aggregate demand. If an action will change the behavior of any of the groups in the right hand column, then the demand curve may well shift. For example, if the official interest rate was increased, then consumers and businesses will require more of their income to repay existing loans. Also, both groups will be less likely to take out new loans. Finally, we can also say that with higher interest rates savings will be encouraged, because the return is now higher. Due to all of these things, these groups will change their spending patterns, and aggregate demand will decrease. This is represented by shifting the curve to the left.
Other factors can be assessed in a similar manner. A change in the value of the Australian dollar, for example, will affect the external sector. A change in the budget outcome is a direct change to the government sector.